Thursday, July 1, 2021

Preliminary Comments on the Trump Organization and CFO Indictment (7/2/21; 7/4/21)

The much-anticipated indictment of the Trump Corporation and components and its Chief Financial Officer (“CFO”), Allen Weisselberg, has been released.  The caption is The People of New York v. The Trump Corporation, et. al. (N.Y. Supreme Court - no number available).  The indictment is here.  (The pdf copies on the web were not adequately OCR’d; I had this copy OCR’d using Adobe Acrobat text recognition; the OCRing came out much better than the copies I found in my quick searches.)

Here are my first general comments (which I may supplement or revise later):

1. The general thrust of the indictment had been reported before the indictment came out.  Basically, through various schemes, certain individuals (including, for purposes of this indictment, the CFO) caused the corporation to underreport and underpay tax liabilities.  Essentially, these individuals caused the corporation to pay compensation that did not appear on the books and filings as corporation subject to various tax obligations – including reporting income of the individuals benefiting from the payments, avoiding payroll tax to the payors and payees, etc.  

2.  This is a fairly common pattern in a closely held corporation except that the payments often go to the owner and the owner’s family rather than to an employee (here the CFO).  In this case, the owner is Trump and the owner’s family are the Trump children and spouses.  Nothing is said about Trump’s off-the-books use of corporate assets, but with the egregious conduct for Weisselberg, one has to wonder whether charges against Trump are waiting in the wings, with the prosecutor hoping Weisselberg will flip.  Given Trump's alleged use of oral instructions (or signals) to avoid putting his conduct in writing to the extent possible, somebody like the CFO would be an important (perhaps not a necessary) witness against Trump if he were indicted.

3.  In this regard, paragraph 5 of the indictment alleges “One of the largest individual beneficiaries of the defendants' scheme was Allen Weisselberg.”  The inference is that Weisselberg was not the largest beneficiary.  Based on what I have inferred about the organization, the biggest fish ahead of Weisselberg in the organization were Trump and perhaps Trump's family members.  Could Trump or family members be the larger beneficiary (ies) inferred in the quoted wording?

4.  And, in the conspiracy count, an "Unindicted Co-Conspirator #1 is named.  (See p. 14.)  Further, the conspirators including “Unindicted Co-Conspirator #1 agreed to and implemented a compensation scheme with the object of enabling Weisselberg to underreport his income to federal authorities, and thereby evade taxes and falsely claim federal tax refunds to which he was not entitled.”  (See p. 15.)   The question is whether acts that would constitute federal tax crimes also state tax crimes committed in the state if the federal fisc is the object of the crime.  I suppose federal tax evasion that could be charged as such is larceny in the state as well.

5.  Given the fact that serious federal crimes were involved under the alleged scheme, will the federal government now get into the act?  And, if the federal government wants a pound of flesh from the CFO, wouldn't it also want it for the guy in charge if indeed he orchestrated or participated in the scheme.

6.  One of the interesting and damning aspects of the charges is that Weisselberg had set compensation and when he employed “off the books” compensation, he reduced his compensation accordingly.  More importantly, he kept records to show the reduction.  Who were those records for?

7.  Another possible reference to Trump is a lease which was part of the scheme that was signed by “the Trump Corporation, acting through the president, * * * “with a rider designating Allen Weisselberg and his spouse as the sole occupants who would use the [*14] apartment as a primary residence.”  (See Second Count pp. 13-14.)  Who was that “president” of the Trump Corporation?  And, in this regard, the Unindicted Co-Conspirator shows up in the acts constituting Overt Acts of the conspiracy.  (See Second Count, p. 14, Overt Act 2.)  It is interesting that the indictment infers that the president (whoever that was) is not Co-Conspirator #1 (otherwise the pseudonym would have been used).

8.  The defendants’ lawyers have alleged that this pattern of conduct is really relatively small and would not be indicted in the Federal universe.  I don’t think that is true.  Had this not involved the President of the U.S., this pattern of conduct, including the sheer scope, brazenness and amounts involved, might well have attracted criminal investigation and prosecution resources.  Should it be different just because a President is involved at some level?

9.  Keep in mind that the Wartime Suspension of Limitations Act, 18 U.S.C. § 3287, here, (see also blogs here) probably keeps the federal tax evasion statute of limitations from the late 1990s "until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress."  Beyond that, on the civil side, the statute is open forever for seeking the tax, the fraud penalty and interest on both.  See § 6501(c)(1) & (c)(2), here.

Added 7/2/21:

10.  When Trump was first elected, I was concerned about the effect that the DOJ policy of not indicting a sitting President would potentially result in  “a get out of jail free” card for Trump for pre-term years because the key statutes of limitations would have expired before DOJ could investigate and prosecute.  For example, say Trump had a pattern of tax evasion on returns each year since 2000.  He knows his returns will be subject to some type of mandatory audit. See IRM (03-12-2015) Audit of President and Vice President.   A prudent President would not file false income tax returns while in office knowing that his returns are subject mandatory audit.  (That begs the question of whether Trump was a prudent person.)  Assuming Trump filed his 2014 return on October 15, 2015, with the DOJ’s Presidential suspension policy, he could be prosecuted for tax crimes relating to his 2014 return up to October 15, 2020. (Note that the usual companion for tax crimes, conspiracy, has a 5-year statute of limitations.)  For the year 2014, there is still some months to do any predicate investigative work and bring an indictment, but given the time required for complex criminal tax investigations, I doubt that CI would, certainly in normal practice, start an investigation for a period that closes in October 2021.  So, effectively, for income tax related crimes committed before October 15, 2015, Trump will have won the criminal audit lottery for tax offenses solely by virtue of the DOJ Presidential policy in connection with normal statutes of limitations.  If one stops there, the Presidential policy is effectively a fringe benefit of the office of President to not be prosecuted for tax crimes prior to becoming President.  I can’t conceive that this should be a perk of the office.  As of now, the WSLA is  the only fix for the President’s criminal tax evasion, if in fact he did commit evasion.

11.  To be sure there may be some solutions.  For example, the President may have done something to refresh the statute of limitations.  That could happen through co-conspirator conduct (such as misrepresentations in a civil audit related to pre-Presidential years.  A well-counseled person who listens to his counsel and acts accordingly will avoid doing anything that refreshes a criminal statute of limitations.  For example, if the IRS conducts a civil audit for the years 2005-2015 which is permissible because there is no statute of limitations for fraud and, in the course of the investigation, the President lies in an attempt to hinder the audit work to generate a lesser deficiency determination, thus triggering a new refreshed criminal statute of limitations for the original evasion. (There are other crimes such conduct may involve, new crimes such as false statements, 18 USC 1001, but I focus here on only refreshing the statute of limitations for the original evasion otherwise outside the normal criminal tax statute of limitations.)  And, of course, the WSLA may fix the statute of limitations problem as well.

11.  The most direct fix, at least going forward, is to suspend the statute of limitations during the period of a President’s term in office.  That would require a statutory fix, but there is ample precedent for that type of fix.  For example, criminal and civil statutes of limitations are suspended during periods where the Government is or may be hampered in its investigation. Thus, § 7609(e) suspends the civil and criminal statutes of limitations when summons compliance is not forthcoming.  I think Congress should impose that fix and could do it without necessarily blessing the DOJ policy of not indicting a sitting President.  For example, the statute could provide that, at any time when the DOJ is not following its policy and formally notifies Congress of same, the criminal and civil statutes of limitations respect the President shall be suspended.

Added 7/4/21 9:00pm

12. Another issue is whether, since the crimes alleged in the counts of the indictment substantially overlap a range of tax crimes that might apply to the conduct alleged, DOJ should or would prosecute those overlapping crimes.  DOJ has a policy on that in Justice Manual 9-2.031 - DUAL AND SUCCESSIVE PROSECUTION POLICY ("PETITE POLICY"), here.  The following excerpt introduces the issue:

This policy precludes the initiation or continuation of a federal prosecution, following a prior state or federal prosecution based on substantially the same act(s) or transaction(s) unless three substantive prerequisites are satisfied: first, the matter must involve a substantial federal interest; second, the prior prosecution must have left that interest demonstrably unvindicated; and third, applying the same test that is applicable to all federal prosecutions, the government must believe that the defendant's conduct constitutes a federal offense, and that the admissible evidence probably will be sufficient to obtain and sustain a conviction by an unbiased trier of fact. In addition, there is a procedural prerequisite to be satisfied, that is, the prosecution must be approved by the appropriate Assistant Attorney General.

Satisfaction of the three substantive prerequisites does not mean that a proposed prosecution must be approved or brought. The traditional elements of federal prosecutorial discretion continue to apply. See Principles of Federal Prosecution, JM 9-27.110.

Of course, given the pattern of conduct, one can infer that there is some likelihood of federal tax crimes which do not substantially overlap the crimes charged in this indictment, so the Petite Policy would not apply to prosecution for those crimes. 

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